How the Greek Economic Crisis Began
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From 2007 to 2008, much of the world was faced with what is now referred to as a “global financial crisis.” Many economists even classify this event to be on par with the Great Depression from the 1930’s and there certainly hadn’t been a financial crisis that even came close to it until the events of 2007 and 2008 started to unfold. The origins of this crisis occurred when the housing bubble that began around 2004 completely burst, which devalued the real estate securities that investors from all over the world had a stake in. After the securities had devalued, global financial institutions as well as the countries associated with them started to falter.
Background of the Greek Economic Crisis
Greece was one of those countries that was effected by this global economic event. However, Greece’s economic difficulties weren’t just tied into this single event. They can actually be traced to 2001 when Greece adopted the Euro, because when that happened, overall trade volume throughout the Eurozone increased considerably. As a result, the cost of labor increased in countries such as Greece relative to countries like Germany. Because of this, it created a trade deficit within Greece, which essentially means that starting shortly after 2001, Greece began to consume more than it produced. Over time, this took a toll on the economy.
The Economic Crisis Begins in 2009
Between the trade deficit and the global financial crisis, the Greek economy began to fall apart. Because Greece had been experiencing a trade deficit for many years, the country needed to either borrow money or receive direct investments from other countries. In 1999, both the trade deficit and budget deficits were below 5% of the Gross Domestic Product. In between 2008 and 2009, both the trade deficit and budget deficits peaked to 15% of the Gross Domestic Product. By 2009, investors who had a stake in Greece started to become concerned that the country would have a difficult time meeting its debt obligations, and it thus created a “crisis in confidence”.
Greece and the First Bailout in 2010
By 2010, the economic situation began to escalate as people realized that yes, Greece really was having a difficult time meeting its debt obligations. In January of 2010, the Greek Ministry of Finance published a paper titled, Stability and Growth Program 2010. In it, they outlined several reasons why the Greek economy was struggling including GDP growth, government deficit, government debt, budget compliance, data credibility, government spending, and tax evasion. On May 3, 2010, the Greek government signed a memorandum of understanding that secured the government’s first round of bailout funds totaling 107.3 billion euros.
Since then, the government has taken part in two additional bailout programs and each of them have been accompanied by austerity measures that have been required of them by the international creditors. These measures are controversial because they have caused the Greek people some discomfort. However, the international creditors believe that these reforms are what the country needs in order to rebound and enter into a period of growth.
Sources:
Wikipedia – History of Modern Greece
Wikipedia – Greek Government – Debt Crisis
Wikipedia – Financial Crisis of 2007-2008
Wikipedia – First Economic Adjustment Program for Greece
Categorized in: Modern Greek History
This post was written by Greek Boston
